The Mistake That Will Doom Your B2B Startup
This is NOT a Growth-Stage Problem
You are a brilliant engineer and/or product manager. You saw an opportunity in a market, teamed up with your favorite co-founder(s) and hacked together an MVP. Through personal relationships, endless cold-calling or some elevator pitch at an industry event you managed to land your first customer.
Early success led to the second and third. You raised funding and turned the company into a business. You even hired business development or sales people.
You have a great pipeline, the trend-line is up and to the right. Marketing? You have a website, you have beautiful PDFs you send customers. Your business development (sales) people attend all of the best industry conferences. You have all the marketing you need. You’re covered. Right?
Let me tell you the real life story of a CEO and a company just like yours. Since this is a real story, pardon me if I obfuscate some of the identifying details.
Cameron is a brilliant guy, worked for an AI startup that Google acquired, built cool stuff at Google Maps and Google X, and left to start his own company with his co-founder, Jared, who ran a software consulting company that happens to work with leading utilities.
The idea? Well, Google Maps et al. already did a great job mapping what’s overground. Let’s map everything underground! There are vast resources underground — utility pipelines, electric wires, energy, storage etc. It’s a unique mapping problem that is in essence a B2B play with deep pocketed customers. UnderMaps was born!
It just so happens that Jared’s biggest customer from his prior company was Texas’ biggest water pipeline company. They became UnderMaps’ first customer and loved the capabilities of the mapping platform.
Water companies are copycats — if it works in Texas, it’s gotta work in New Mexico, Arizona etc. UnderMaps hired sales and business development, and moved state to state, signing up water utilities.
The A round was raised without a hitch, albeit from second tier investors (“Even better! They won’t try to micromanage us, and aren’t looking to build a unicorn necessarily!”).
Tier one investors were concerned — the company has only proven itself in a single market where there is a “word-of-mouth” effect. Will UnderMaps be able to scale as a platform and sustain growth?
Cameron and Jared realized the need for “another vertical”, and spent precious time and resources to build solutions using UnderMaps for logistics and electric companies — vast additional markets, albeit with different dynamics.
With luck, they got pilot customers for each of these industries from their existing customer base — every water company has some logistics, and some have their own electric distribution grid. Who needs to do marketing in a new sector, if you have friends in an existing one?
By the time they needed to raise a B round, UnderMaps had thirty “big” customers ( ~$100K ACV) and forty small ones (~$50K), with of course 95 percent from the water sector. They got a reasonable term-sheet at a $50M valuation, and spent a month working on due diligence and definitive documents.
But during that month, something “unusual” happened. The curve bent the wrong way. Some deals in the water segment didn’t close, the new products were not yet performing — few leads and far between. The quarterly growth forecast was a wash. The investors were hesitant to sign and wanted to wait to see what happened. Another month passed, growth was tepid at best, and the deal was off the table.
But don’t worry — Cameron and Jared had a potential acquirer knocking on the door, and the number $70M was mentioned. The universe was still smiling at them.
Three months later, the buyer was still kicking the tires. Worse, the exponential growth over the last three years turnsed linear despite the sales team’s best efforts.
There were too few leads for the new products and potentially tough competition. Another VC put a term sheet on the table — but the valuation was 30% lower than before. The A round investors were willing to bridge to a sale, but that’s about it.
Attempts to shake up some big trees for M&A met initial interest followed by radio silence. The company was unknown to the big platform players, there was little interest in the water sector business, too little proof for the new markets, and no one except Corp Dev heard of UnderMaps before…
There was a last-minute effort to raise the company’s profile, and within three months a reasonable digital marketing program and team were set up.
By then, though, the acquirers smelled the lack of competition and the acquisition eventually closed at a valuation significantly below any of the VC term sheets from a few months earlier, and way below the team’s and investors’ expectations.
But everything was fine last quarter?!
To make a few things clear — the company was successful at finding product-market fit. The customers were brands you know and use.
The software was installed on hundreds of millions of phones. In fact, it’s probably on your phone right now. The business model worked, and the company was not burning cash quickly. Churn was close to zero. There were no skeletons in the closet.
But the venture capital model is based on growth velocity. VCs are looking for companies that are growing exponentially, at least post round C, say at least until you hit $50M revenue.
Linear growth just doesn’t cut it. A startup’s fundability and valuation drop precipitously if it looks like growth is slowing down or worse — plateauing.
Yes, the company could have taken a smaller round, at a lower valuation, and maybe come back to accelerated growth twelve to eighteen months later — but with further founder dilution, less founder control, and other market risks. Need I say COVID-19?
If you’re running a venture funded company — you’re expected to hit venture metrics.
UnderMaps’ under-investment in marketing did not hamper its growth initially, in its original market segment where the founders benefited from a good personal network and a copycat market. So, as long as sales people could keep signing up water companies, everything seemed fine. But at the same time:
- Key opportunities were missed — because without exposure to other markets, the company didn’t even know these opportunities existed.
- Strategic partners were oblivious to the UnderMaps’ existence, further reducing serendipitous growth, and making M&A much harder later when they were approached at the last minute.
- Launching into the new market segments was too slow — because the company lacked basic marketing skill-sets and infrastructure in markets where it didn’t have a pre-existing network of leads to draw on.
If the market doesn’t know you exist, you might as well not.
This is NOT a Growth-Stage Problem
Reading this as a seed CEO, I bet you might say to yourself — “Good point. In my A round I’ll make sure there’s some budget for marketing, and handle it then.”
As product people, many of us have been brought up on the Field-of-Dreams hypothesis. “Build it and they will come.” You must be thinking: “My product is so good, it sells itself. I know I have to show some traction to investors, so I will talk with some customers, get a few of them on board the hard way, and then I’ll just hire a salesperson to do that for me, and things will grow from there.”
Well, no. “Build it and they will NOT come” is a cliche now, too. Just Google it.
Kevin’s Not Coming For You
What may have worked twenty years ago on the Wweb and ten years ago on mobile is not relevant today. Your customer / user is exposed to hundreds of brands and thousands of marketing messages every day — as a consumer and as a professional.
She doesn’t read professional journals, she doesn’t research the latest and greatest vendors regularly. She reads Facebook and LinkedIn, maybe Twitter, and she gets only what is pushed in front of her effectively.
In order to get her time, resources and professional credibility, which you have to if you are to sell to her company, you need to get her attention initially, and her trust eventually. And after you have managed that once, you need three more of her. And then nine. And then twenty-seven. How do you set yourself up for scalable success?
Your marketing infrastructure plays a key role in getting initial traction
As soon as you’re ready to engage with a market — even before you have an MVP, having the right marketing infrastructure helps you get your first sales:
- In B2B, before people will give you their time and attention, they are going to Google and LinkedIn the heck out of your company, product, team etc. They are going to read your press, check out your customers, etc. If you don’t look professional, they will not waste their time.
- As you go through the sales / business development process, the consistency and credibility of your messaging determines the level of trust you will get. If you don’t speak their lingo, if different team members tell different stories — they will not spend their money.
- Investors and partners go through the same process — you need to get their attention and gain their confidence so they know you will be able to build a business, given the opportunity.
I am not going to go into details of “how to do it” in this post, only provide a basic outline. Start pre-sales. Get at least the following infrastructure in place:
- A coherent narrative — your positioning statement, key messages, the “why”, “what” and “how” of what you do — delivered effectively on your presentations, website / blog, LinkedIn page, Twitter etc.
- Basic audience management — e.g. a mailing list with regular updates.
- Start making noise — be identified with your market segment, your technology, the customer problem — by blogging, podcasting, posting to social media, joining panels — whatever you can do to get noticed and build authority.
Marketing should be part of your company’s DNA. Introducing it late gets you lipstick on a pig.
Marketing Is Your Lever and Your Crutch Once You’re Growing
Once you have your first sales, you need to start a replicable, accelerating process. You don’t truly have product-market-fit yet — in the sense that until you’ve engaged with a big enough share of the market, you don’t know a) that you have the right offering and/or b) that you’re actually selling to the optimal customers. The proof of the pudding is in the eating, and your goal is to scale.
If your product truly sells itself, for instance for a pure-SaaS put-your-credit-card-in-the-website business, the question is a) how many customers can you get to that website and b) what percent converts? Customer acquisition rate and customer acquisition cost (CAC) are your obvious metrics and they are achieved via some form of online marketing.
Even if you sell through a channel, e.g. an app store, how effective you are at converting and retaining customers as well as getting more out of them, such as upgrades and virality, are all a function of marketing.
But let’s say that your product is a high-touch enterprise sale, where sales, business development and technical people need to put in considerable time and effort into every account. Even then, what these people like to call “inbound” and “product marketing” could be what makes or breaks the company.
Salespeople are there to convert leads. That’s how they are incentivized, that’s their outlook on the world. The more qualified leads they get, the more money they can make for you and for themselves. If there aren’t enough, well, some other company has a product that the market needs more, and that’s who they want to work for.
If your marketing materials don’t tell the right story, if different team -members have different narratives, if the company doesn’t look like a market leader when the customer researches it post-meeting — leads don’t convert to sales. Guess what? They do at that other company. That’s who they want to work for.
I am here to Always Be Closing
Effective market engagement means getting the market’s attention and generating leads.
Some of these leads will be qualified — these are the ones Sales will chase and close for you. Some of these leads will be out of bounds — and will feed into your business development process, hopefully helping you discover there are market segments / opportunities you didn’t consider before.
While you’re doing well in your initial segment, you can slowly cook up your offering for these new segments, collecting leads that you will convert as soon as you launch, so you can maintain momentum even as you may be depleting the low-hanging-fruit of your initial market.
More often than not, you will discover that you don’t really have product-market fit. Having an existing database of leads to pursue enables a quick pivot, which may save / launch your company. Having to start from scratch — with no contacts, no clear idea of a new market’s needs — you may run out of time and money too soon.
But if business development uses those “off market” leads to research the market and create relationships, you have a much better chance of success.
Finally, even if you’re not incredibly successful, looking successful draws investors, strategic partners, and A-players to your team. These will help accelerate your success. But if you look average you probably are average. At best.
Dress your company for success.
…and Start Early
I have a great website, a cool logo and fancy sales materials. What am I missing?
What you’re missing is the point.
There are two billion (that’s a B) websites, 2.8 million apps, 0.5 million brands. You are a tree in a big forest and the way you’re handling this , there may not be anyone around to hear you when you fall.
Positioning, messaging, brand, design, website, sales materials — all are parts of your infrastructure. But the marketing machine you have to build on top of this infrastructure has to be proactive. We live in a world where there is too much content, too much distraction.
To reach your customer you have to rise above the noise. That requires you to get in her face, on the right medium, time and context, and do it multiple times. What that means specifically to your company obviously depends, but as a B2B in 2020, most likely it involves:
- Content marketing — because people like consuming content, not advertising.
- Non-superficial messaging — because your message is non-trivial (all the trivial products have been built already) and you want to show your thought leadership.
- Media, mostly Social Media, engagement — because your customers spend their time on LinkedIn, Facebook, Twitter, YouTube, TechCrunch , anywhere but your website — unless you have a scintillating blog.
- Search Engine Optimization / Marketing — because when they are ready to buy something, they Google it.
- Regular outreach, e.g. a newsletter — because you want them to remember your product when they are ready to buy, which likely isn’t the first or second time they stumble upon it.
- Advertising — because exponential growth (see above)
Final Words — Marketers Are Professionals Too
My apologies if this post sounds like a rant. It is. I run into CEOs who are otherwise executing well but are squandering their opportunities because they’re not doing Marketing well — and it happens to me on a weekly basis. I personally would have been better off today if I did it right from the beginning.
One of the most perplexing phenomena is how acutely aware tech CEOs are of the diversity of expertise and quality of engineering folks, while assuming that marketers are all some kind of generic, unskilled labor(*).
You have full-stack developers, DevOps guys, QA experts, data scientists, front-end guys, real-time engineers, ML/AI people and “hackers”. You know that some of them are 10X’s while some are rock-stars and some are just “OK”.
But for marketing, you hired that agency that built the website, designed the logo, created a strategy, wrote the messaging and produced the video — and assumed you could get all of that for what you pay your QA interns and be done in a month. You want the meetings with them to be as short as possible,
you ask for core strategy to be done on a shoestring within 30 minutes so you can go back to “work”.
You spend as little time as possible answering their questions when they’re writing the blog post that’s supposed to make you look like a “thought leader”, and you think spending $3,000 on an ad campaign is hard to justify, although that’s what it cost for you and your co-founder to fly to London for that one meeting with that customer you’re trying to land.
Argh… there I go ranting again.
Apologies. I get it. I, too, wrote code decades before I wrote copy. I hired and then fired four VPs of marketing in my days, in two companies. I didn’t get it and then I sorta did. Now I do. And so should you. Marketing, and doing it well, could be the difference between success and failure for you too.
My last and final apology — this was a “Why” article, not a “How” article. If you like it enough, clap or like. If there’s enough demand, maybe I’ll write that one too. And if you need a referral, hit me up.
(*) As I was proofreading this, I got the following message from a pre-seed CEO. I s@&t you not.
Note my angry response:
Life Is Stranger Than Fiction
Author: Nadav Gur is a serial entrepreneur who works with startup CEOs to make them 10% better and 23% more successful. See https://NGVanguard.com